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The demand for physical gold is growing and continues to be strong because investors are realizing the importance of allocating a portion of their assets to precious metals.
This surge in demand also created a rise in the formation of many new bullion companies but many of them just want to take advantage of customers or just plainly out to scam people. Various types of gold coin scams have been going on in the gold market for years – a testament to the fact that there are still a lot of people who fall for these tricks.
1. Understand What You Buy
The most important thing is to understand what exactly you're buying, at least like any other purchase you do:
Price. An investor must know the current spot price of gold, or for that matter, any precious metal they want to deal in whether they are buying or selling. Most bullion items, such as the American Eagle, Canadian Maple Leaf, and South African Krugerrand usually sell above the current spot price. The going rate is about three to five percent more but it depends on the quantity involved. Beware of high-pressure selling prices because it will put you in a situation where you have to wait for the value of gold or silver to double (or even triple) before you can make a profit.
Weight. You should know how jewelers weigh the gold. The accepted measure on the international market is in troy ounces. When dealers and investors talk about spot prices, they are always in reference to troy ounces as well. A troy ounce is not the same as a standard ounce. Technically, a single troy ounce equals 1.0971 standard ounces or 31.1035 grams.
Design. Each coin has its own unique design that has very minute details that make them extremely difficult to completely fake. So, make sure that all these details come out distinctly in every gold coin that you want to buy.
How to Verify a Gold Coin is Real?
Experienced jewelers employ the ‘ping' test to determine the genuineness of a gold coin or bar. This is accomplished by listening to the sound made when gold is hit. When hit, precious metals produce a lengthy, high-pitched ringing sound, as contrasted to base metals, which produce a duller and shorter sound.
Another way to identify fake gold is by carrying out a magnetic test. Fake gold is magnetic, but real gold (.999 fine gold) is not. Using a strong magnet, you can test gold to see whether it is real or not. If a magnet is attracted to what you believe is a gold coin, then it’s most certainly not real gold (or 99.9-percent pure).
2. Quick Delivery
When dealing with precious metals, prompt delivery of the bullion items is non-negotiable. Stay away from sellers who want to hold on and store your gold or try to convince you that delivery will take months to complete.
Remember that you’re buying the gold coins because of their liquidity. If you don’t have physical possession of the gold coins, then you won’t be able to act fast when you want to sell.
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3. Use Only Reputable Dealers
You should choose a dealer with a good track record in the industry. Simply look for repeat customers – if customers get bad service or have negative experiences with them, they definitely won’t return.
A good place to research potential companies and investments is on the online forum on the Internet. There are many forums about investing in gold and other precious metals. Many members provide posts about companies that scam investors, so you can keep away from these dealers.
Here’s a warning: even if the website shows the Trustpilot logo, don’t assume that the logo is authentic. The best thing to do is to go to Trustpilot’s website and search for the company. It’s very easy to copy the Trustpilot logo and use it to fool people.
4. Avoid Offers That Are “Too Good To Be True”
If you encounter an offer of a bullion product that sounds too good to be true, chances are, it probably is. Be cautious of such offers – or one that comes with extravagant incentives or exaggerated claims. In this case, it’s okay to be suspicious.
It’s interesting to note that gold and silver bullion products always sell at spot prices – sometimes above but never legitimately below them. Those who hold precious metals can go to a dealer and sell their items on the spot, for their full value. In this kind of environment, anyone who’s offering items at give-away prices to you is most probably trying to hoodwink you.
That being said, it follows that any gold investment account, gold futures or other precious metal investing schemes where the buyer does not get physical possession of the bullion should raise a handful of red flags. They have the characteristics of a con sting.
No sane legitimate dealers will also offer items below their cost. Dealers, in order to keep being in business, must charge small premiums above spot prices to cover product minting costs and their overhead.
5. Buy From Big Lenders Only
Dealers who have been in business for some time are obviously more reliable. They are bigger, handle more volume and are more flexible.
Small dealers will have their own limitations such as having limited product selection and may not be able to satisfy a large order fast enough. They will also fall short in delivery time when you compare them with large dealers. The bigger players can ship within 2-4 days after your payment has cleared the bank. The small dealers will have a longer turn-around time.
6. Ask For Documentation
It is important to ask for documentation on the impartial grading of the bullion products when buying through the Internet. Any legitimate dealer would readily have this form of certification.
Before you buy, verify with an independent source and make sure that the third party is really independent and not under the dealer’s employ.
7. Check For Buyback policy
In all probability, you’d want to sell your gold at one point or another and the best way is to sell it through the dealer from whom you bought them.
So, you’d want to know if the dealer has a buyback policy. If a dealer will not extend this service to you, strike them off your shortlist. Your dealer should be available for you not only when you’re buying but also when you’re selling. You should have an assurance that your dealer won’t leave you without an idea whether you can get a buyer for your gold or not.
Of course, there are plenty of gold dealers who are always looking for gold to buy any time but why take chances with them? The good thing with dealers that have a buyback policy is that their rates are among the best prices around.
8. Avoid Rare Coins
There is also a huge interest in numismatics or valuable coins that people collect. Because of this, they are a huge profit opportunity for legitimate dealers – as well as scammers. As we’ve said, gold and silver bullion products do not reasonably sell below their spot prices.
As a bullion investor, you should focus more on the number of ounces you hold rather than the presumed rarity or aesthetic value of the coins.
Sometimes, the scammer will pose as a dealer and make fake claims about a coin’s history or value or engage in “bait and switch” tactics and smooth talk to steer ignorant customers into buying expensive coins.
9. Look For Multiple Forms of Payment
Modern businesses now accept different ways of making payment and your dealer should not be any different. This means that you can pay with the traditional cash (like in your local shop), checks and money orders.
Likewise, there should not be any problem with them if you’re going to pay via bank transfers and credit cards because they are more convenient despite the extra fees. Some dealers also accept digital currencies such as Bitcoin or PayPal. Just take note of the timing differences – these dealers will wait until they get the funds before they move to send you the merchandise.
10. NFA Database and the Better Business Bureau
It is important to know that people who sell “physical” precious metals, like gold or silver bullion, do not need to get a license or training from the National Futures Association (NFA).
You can search the NFA database to get an idea of the regulatory history of the dealer. You can find there if they have a license if the NFA has sanctioned them before or totally banned them.
If they are not on the database, that’s a cause for alarm because you really don’t know who you’ll be dealing with. Another option is the Better Business Bureau. You can check if they are on it, how long they’ve been doing business, ratings, and what kind of reviews they’ve received.
FAQs
Can gold coins be faked?
Gold is a precious commodity that can also be used as a hedge against inflation. For centuries the precious metal has been used to do transactions and preserve wealth. This expectedly would draw shady characters to the commodity hoping to engage in unscrupulous acts by making counterfeits.
Gold coins can be faked, and as such, it is important for traders or investors who want to physically own this precious metal to be able to spot a counterfeit.
How can we protect gold coins?
Store in a dry place: Avoid exposing your gold coins to extreme temperatures or direct sunlight. It is also advisable to keep your gold coins away from humid places and store them in dry areas.
Keep your gold coins in a personal safe: You can store your gold coins in a well-built personal safe. This
would secure them and protect them from theft or any sort of damage.
Bullion bank: Private coin and bullion banks operate like traditional banks but are specialists in storing precious metals and other valuable similar items. As such, they have a more efficient way of handling and storing gold coins.
For a fee, a bullion depository would store your gold coins. When making a choice, it is advisable to look for a depository that allows you to see your coins, or withdraw them within a day’s notice.
What is the safest way to buy gold coins?
The safest way to buy gold coins is by purchasing from people around you or individuals you trust. This way you can always track the person if there are issues with the coin later on.
Alternatively, you can try a local dealer or pawn shop. It is also good to ask for referrals or go with someone with more experience when you want to purchase the gold coins. You can also try buying gold online, but only if the dealer is listed in the United States mint database.
How and where to buy gold coins?
You may buy gold coins from a variety of sources. It is best you start with people within your close circle. It could be from a friend or individual you trust. You can also take a look on our list of the best gold dealers.
Alternatively, you can buy gold coins online from vendor such as JM Bullion. If you decide to purchase gold coins online, make sure to use a dealer who is listed in the register of the United States Mint.
Is buying gold coins a good investment?
Gold can be good investment if your goal is to protect yourself from inflation, since gold prices tend to go up in inflationary environment.
Buying gold coins may not be a good investment in the long term. Unlike shares or bonds or deposits, gold is an unproductive asset. Investors don’t get dividends or interest on their investment. Its price only appreciates based on fear and the notion that other asset classes will lose value. In the recent years, gold has not been a good hedge against inflation.
